Financial Planning

To move or not to move: Medicare premiums and Roth conversions

DATE | 11/13/23
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Roth account conversions occur when you move money from a traditional (pre-tax) retirement account to a Roth (after-tax) retirement account.

Why convert funds to a Roth account?

There are many potential reasons to convert funds from a traditional to a Roth retirement account. A common reason is that converting those funds can provide an opportunity for future tax savings.

Financial planners are currently seeing an influx of Roth conversions. One reason is that tax brackets (resulting from 2018 tax cuts) are sitting 3% lower until 2026, when they will likely revert to prior tax bracket levels ( Depending on circumstances, individuals are preferring to pay the lower taxes on their income now versus paying taxes on that income in retirement.

Paying less taxes sounds great, right?

Yes—but it’s not quite that simple. Individuals 63 years and older should be aware of the potential effect this has on Medicare premiums. Converting traditional to Roth funds requires account holders to report that money as income on their taxes. If you complete a Roth conversion and that raises your modified adjusted gross income (MAGI) past a certain level, you could be increasing the premiums you pay for Medicare B and D and reducing the intended tax savings. This increase is called an income-related monthly adjustment amount.

Income-related Monthly Adjustment Amount (IRMAA)

IRMAA brackets are released each year (see table on next page) and your bracket is determined based on your MAGI from two years prior. With the two-year look back period, if you are going to enroll in Medicare at age 65, you will want to take this into consideration at age 63.

However, it’s important to note that MAGI for IRMAA is calculated slightly differently than MAGI not related to healthcare. Your MAGI for the 2023 IRMAA can be calculated by taking your 2021 federal tax return adjusted gross income (AGI) and adding any tax-exempt interest earned from bonds, etc. and/or other income sources not included in your AGI. So your 2021 MAGI for Medicare determines your 2023 IRMAA bracket.

Modified Adjusted Gross Income (MAGI)Part B monthly premium amountPrescription drug coverage monthly premium amount
Individuals with a MAGI of less than or equal to $97,000
Married couples with a MAGI of $194,000 or less
2023 standard premium = $164.90Your plan premium
Individuals with a MAGI above $97,000 up to $123,000
Married couples with a MAGI above $194,000 up to $228,000
Standard premium + $65.90Your plan premium
Individuals with a MAGI above $123,000 up to $153,000
Married couples with a MAGI above $246,000 up to $306,000
Standard premium + $164.90Your plan premium + $31.50
Individuals with a MAGI above $153,000 up to $183,000
Married couples with a MAGI above $306,000 up to $366,000
Standard premium + $263.70Your plan premium + $50.70
Individuals with a MAGI above $183,000 and less than $500,000
Married couples with a MAGI above $366,000 and less than $750,000
Standard premium + $362.60Your plan premium + $70.00
Individuals with a MAGI equal to or above $500,000
Married couples with a MAGI equal to or above $750,000
Standard premium + $395.60Your plan premium + $76.40

For more information check out Premiums: Rules for Higher-Income Beneficiaries from the Social Security Administration.

Can I complete a Roth account conversion without triggering a premium increase?

Yes! It is possible but requires pre-planning and strategy, as everyone’s situation is different. It’s important to find a financial advisor you trust, like Member Benefits, or tax advisor to help navigate these decisions and figure out a suitable strategy for you. They can work with you to calculate the amount of funds you’d be able to covert from a pre-tax to Roth account but still keep you within the same IRMAA bracket, not increasing your Medicare premiums.

We can help

Meet with one of Member Benefits’ financial advisors for a retirement plan review to start building a strategy that’s right for you.

1-800-279-4030, Ext. 6730
Schedule a financial coaching option.

Converting from a traditional IRA to a Roth IRA is a taxable event.
*If you choose to invest in the WEA Tax Sheltered Annuity or WEA Member Benefits IRA program, fees will apply. Consider all expenses before investing.